ACritical Companion: Why Climate Progressives Should … · ACritical Companion: Why Climate...

A Critical Companion: Why Climate ProgressivesShould Learn to Love the World TradeOrganization

COLLMANN GRIFFIN*

TABLE OF CONTENTS

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200I. How the WTO Cuts the Costs of Renewable Energy . . . . . . . . . . . . . . 202

A. The Law of Free Trade: The Most-Favored-Nation Principle,National Treatment Principle, and Low Tariffs . . . . . . . . . . . . . . 203

B. The Economics of Free Trade: Comparative Advantage, Economiesof Scale, and Relentless Competition . . . . . . . . . . . . . . . . . . . . . 204

C. The Effects of Free Trade: Cheaper Renewables Sooner . . . . . . . . 206II. How the WTO Discriminates Between Beneficial and Harmful Support

for Renewables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208A. The Need to Support Renewables . . . . . . . . . . . . . . . . . . . . . . . 209B. The Agreement on Subsidies and Countervailing Measures

(“SCM”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2101. SCM Articles 1 and 2: Government Support Measures Outside

of the SCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2102. SCM Article 5: Actionable Subsidies that Harm Other

Members’ Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2113. SCM Article 3: Prohibited Subsidies that Distort Trade . . . . . 212

C. The Agreement on Trade-Related Investment Measures(“TRIMs”): A Backstop for the SCM . . . . . . . . . . . . . . . . . . . . 213

D. Chinese Photovoltaics: Actionable and Export Subsidies. . . . . . . . 2141. SCM Article 3.1(b) and SCM Article 5 Applied to China’s

Solar Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2142. The Economic and Environmental Effects of China’s Solar

Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216E. Canada—Renewable Energy, Canada—Feed-in Tariff, and

India—Solar Cells: Local Content Requirements (“LCRs”) . . . . . . 2181. SCM Article 3.1(a) and TRIMs Applied to Canada and India’s

LCRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2192. The Economic and Environmental Effects of Canada and

India’s LCRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224

* J.D. 2016, Georgetown University Law Center. © 2017, Collmann Griffin.

199

INTRODUCTION

The World Trade Organization (“WTO”) is not seen as a friend of theenvironment by many in the environmental community.1 In U.S.—Shrimp, theWTO seemed to strike down a U.S. regulation requiring shrimp fishermen to useturtle excluder devices in their fishing nets that would allow endangered seaturtles to escape.2 In U.S.—Gasoline, the WTO required the United States tochange an “enforceable, trustworthy, and economically feasible”3 rule promul-gated under the Clean Air Act that ensured imported gasoline met U.S. standardsfor health-threatening air emissions.4 And in U.S.—Tuna II, the WTO forced theUnited States to weaken a popular law designed to protect dolphins captured intuna fishermen’s nets.5

More recently, WTO law has prevented the Canadian,6 Chinese,7 and Indian8

governments from using subsidies to support renewable-energy technology andproduction capability. These recent WTO disputes seem especially perversebecause they appear to undermine countries’ attempts to mitigate climate change.Knowledgeable economists and environmentalists predict catastrophic effectsfrom climate change, including disruption of water supplies, decreased cropyields in the world’s poorest regions, invigorated tropical disease, mass extinc-tions on a scale not seen since the dinosaurs, and rising sea levels.9 The mosturgent thing we need to mitigate these catastrophic effects is to reduce anthropo-genic emissions of the greenhouse gases (“GHGs”) that drive climate change—

1. See, e.g., The WTO, the Environment, Health and Safety, PUBLIC CITIZEN, http://www.citizen.org/Page.aspx?pid�1425 (last visited Nov. 26, 2016).

2. See Appellate Body Report, United States—Import Prohibition of Certain Shrimp and Shrimp Products,WTO Doc. WT/DS58/AB/R (adopted Nov. 6, 1998).

3. Alan Tonelson & Lori Wallach, We Told You So: The WTO’s First Trade Decision Vindicates the Warningsof Critics, WASH. POST, May 5, 1996, at C4.

4. See Appellate Body Report, United States—Standards for Reformulated and Conventional Gasoline,WTO Doc. WT/DS2/AB/R (adopted May 20, 1996).

5. Appellate Body Report, United States—Measures Concerning the Importation, Marketing and Sale ofTuna and Tuna Products, ¶ 3, WTO Doc. WT/DS381/AB/R (adopted June 13, 2012).

6. See Appellate Body Report, Canada—Certain Measures Affecting the Renewable Energy GenerationSector, WTO Doc. WT/DS412/AB/R (adopted May 24, 2013) [hereinafter Canada—Renewable Energy ABR].

7. See Request for Consultations by the United States, China—Measures Concerning Wind Power Equip-ment, WTO Doc. WT/DS419/1 (Dec. 22, 2010) (United States initiating dispute by requesting consultations);see also Press Release, U.S. Trade Rep., China Ends Wind Power Equipment Subsidies Challenged by theUnited States in WTO Dispute (June 8, 2011), https://ustr.gov/about-us/policy-offices/press-office/press-releases/2011/june/china-ends-wind-power-equipment-subsidies-challenged (announcing end to China’s program as aresult of request for consultations).

8. See Request for Consultations by the United States, India—Certain Measures Relating to Solar Cells andSolar Modules, WTO Doc. WT/DS456/1 (Feb. 6, 2013) (United States initiating dispute by requestingconsultations); see also Rajesh Roy, WTO Panel Rules Against India’s Solar Program, WALL STREET J. (Sept. 1,2015, 9:04 AM), http://www.wsj.com/articles/wto-panel-rules-against-indias-solar-program-1441112645.

9. NICHOLAS STERN, STERN REVIEW: THE ECONOMICS OF CLIMATE CHANGE 57 (2006), http://mudancasclimaticas.cptec.inpe.br/rmclima/pdfs/destaques/sternreview_report_complete.pdf.

200 THE GEORGETOWN ENVTL. LAW REVIEW [Vol. 29:199

carbon dioxide, methane, nitrous oxide, etc.10 And a critically important way toreduce GHG emissions is to develop and deploy renewable-energy technologiesthat can produce energy more cheaply than our current GHG-emitting technolo-gies.11 Therefore, given the enormity of the climate-change problem and theoutsized role that fossil energy has played, is it time to rethink the WTO’s lawregarding renewable energy?

This Note argues that the answer to this question is an emphatic “no.” One ofthe most important goals in any climate-mitigation strategy is cutting the cost ofrenewable sources so they can compete with fossil fuels. And if the WTO has onestrength, it is the organization’s ability to unleash the best forces for cutting thesecosts, as will be demonstrated below. In fact, the WTO deserves tremendouscredit for the progress already achieved on this front, and is perhaps the onlyinternational institution that can ensure this progress continues. Furthermore,even when governments intervene to accelerate the adoption of solar and windenergy, they must do so in ways that preserve the cost-cutting forces guaranteedby the WTO.

The legal and economic arguments that underlie the assertion will be discussedin greater detail, but for now, consider the following illustration: Over the pastfew decades, prices for products that cannot easily be traded across internationalborders have risen or remained stubbornly high.12 As examples, consider collegetuition, childcare, healthcare, vehicle maintenance, and housing.13 During thesame period, prices for products that can easily be manufactured in one place andsold in another have plummeted. As examples, consider goods like toys, phones,personal computers, and televisions, the prices of which have dropped by 60% to150% over the past decades.14 Free trade has almost certainly played a role in theprice difference between traded and non-traded products.15 Do we want the costof renewables to stay stubbornly high, like the cost of healthcare, childcare, andeducation? Or do we want the cost to plummet, like with toys, phones, ortelevisions?

The Note proceeds as follows: Part I introduces the General Agreement onTariffs and Trade (“GATT”), and also explains the free-trade forces this agree-ment unleashes: comparative advantage, economies of scale, and global competi-tion. Sections II.A, II.B, and II.C discuss the need to support renewables, the

10. INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, RENEWABLE ENERGY SOURCES AND CLIMATE CHANGE

MITIGATION: SUMMARY FOR POLICYMAKERS AND TECHNICAL SUMMARY 7 (Ottmar Edenhofer et al., eds. 2011),https://www.ipcc.ch/pdf/special-reports/srren/SRREN_FD_SPM_final.pdf.

11. Id.12. Annie Lowrey, Changed Life of the Poor: Better Off, but Far Behind, N.Y. TIMES, Apr. 30, 2014, at A1.13. Id.14. Id.15. David Boaz, The Benefit of Free Trade is Not Exports, It’s Lower Prices on Things We Want, CATO INST.

(May 22, 2015, 10:55 AM), http://www.cato.org/blog/benefit-free-trade-not-exports-its-lower-prices-things-we-want.

2016] CLIMATE AND THE WORLD TRADE ORGANIZATION 201

Agreement on Subsidies and Countervailing Measures (“SCM”) and the Agree-ment on Trade-Related Investment Measures (“TRIMs”)—all of which explainhow the WTO permits beneficial support for renewables but prohibits harmfulsupport that undermines free trade. Sections II.D and II.E explore four cases—theChinese Photovoltaics case, Canada—Renewable Energy, Canada—Feed-inTariff, and India—Solar Cells—and argue that these four cases applied WTO lawto achieve the best economic and environmental outcomes.

However, before beginning an analysis of WTO law and policy, it is importantto clarify what this Note does not discuss. First, this Note does not consider theapplication of WTO law to a carbon tax or a carbon tariff.16 This important legalissue is beyond the scope of this Note, which focuses on how the WTO reducesthe costs of renewables. Second, this Note takes no stance on other controversialareas of free trade: Free trade may or may not lead to unemployment in the shortrun, given that workers cannot be retrained quickly enough to keep up withforeign competition.17 Free trade may or may not exacerbate global inequality,since the poor are often less able to adapt to globalization than the rich.18 Andfree trade may or may not permit regulatory and environmental arbitrage, wherecompanies are able to escape legitimate regulation by relocating to less devel-oped jurisdictions.19 Instead of tackling these issues, this Note assumes thatcutting the cost of renewables is so important that all other concerns must take aback seat.

I. HOW THE WTO CUTS THE COSTS OF RENEWABLE ENERGY

Any discussion of the WTO begins with the General Agreement on Tariffs andTrade (“GATT”), which came into force in 1947,20 and therefore predates theWTO by a half century. The 1995 Agreement Establishing the World TradeOrganization21 took an updated version of the GATT as its core,22 adding

16. For an excellent discussion of WTO law’s application to carbon taxes and carbon tariffs, see JENNIFER

HILLMAN, CHANGING CLIMATE FOR CARBON TAXES: WHO’S AFRAID OF THE WTO? (2013), http://www.gmfus.org/file/3102/download.

17. Compare Adam Weissman, The Trans-Pacific Partnership: The Closed-Door Deal to Establish Corpo-rate Power, OCCUPY WALL STREET, http://occupywallstreet.net/story/trans-pacific-partnership-closed-door-deal-establish-corporate-power (last visited Dec. 1, 2016), with MATTHEW J. SLAUGHTER & PHILLIP SWAGEL, IMF,DOES GLOBALIZATION LOWER WAGES AND EXPORT JOBS? (1997), https://www.imf.org/EXTERNAL/PUBS/FT/ISSUES11/issue11.pdf.

18. Compare Weissman, supra note 17, with SLAUGHTER & SWAGEL, supra note 17.19. Compare Weissman, supra note 17, with SLAUGHTER & SWAGEL, supra note 17.20. General Agreement on Tariffs and Trade, Oct. 30, 1947, 61 Stat. A-11, 55 U.N.T.S. 194 [hereinafter

GATT].21. Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1994, 1867 U.N.T.S. 154

[hereinafter Marrakesh Agreement].22. General Agreement on Tariffs and Trade 1994, Apr. 15, 1994, Marrakesh Agreement Establishing the

World Trade Organization, Annex 1A, 1867 U.N.T.S. 187.


additional agreements to extend GATT principles to other areas23 and a newDispute Settlement Understanding (“DSU”) to better enforce the GATT.24

For our purposes, the GATT articulates three central legal principles: themost-favored-nation principle, the national-treatment principle, and the principleof converting all non-tariff restrictions on trade into tariffs, all of which arediscussed in section I.A of this Note. Together, these three principles allowthe economic forces of comparative advantage, economies of scale, and relent-less global competition to work, as discussed in section I.B. Renewable-energyfirms, such as the Danish wind giant Vestas, have taken advantage of these forcesto produce better, cheaper products more quickly, as discussed in section I.C.

A. THE LAW OF FREE TRADE: THE MOST-FAVORED-NATION PRINCIPLE, NATIONAL

TREATMENT PRINCIPLE, AND LOW TARIFFS

At first glance, the GATT seems quite complicated, with thirty-eight articles,nine annexes, and two appendices.25 In reality, the GATT primarily consists ofthree principles. (It is the several exceptions that make things complicated.)These three principles are the most-favored-nation principle, the national-treatment principle, and the principle of conversion to tariffs.

GATT Article I articulates the most-favored-nation (“MFN”) principle: When-ever a party grants any “advantage, favour, privilege or immunity” to a productoriginating in another country, that party must immediately and unconditionallygrant the same advantage to “like product[s]” originating in all other GATTparties.26 Before MFN, governments used trade law as a political tool, discrimi-nating between trade partners on the basis of geopolitics instead of economics.27

Trade therefore developed according to political rather than economic reasons.28

This, in turn, distorted the market in favor of goods and services that were moreexpensive or of lower quality.29 MFN has been eroded in recent years by freetrade agreements and customs unions.30 Nevertheless, MFN remains the corner-stone of the GATT economic order.31

23. See, e.g., Agreement on Subsidies and Countervailing Measures, Apr. 15, 1994, Marrakesh AgreementEstablishing the World Trade Organization, 1867 U.N.T.S. 14 [hereinafter SCM]; Agreement on Trade-RelatedInvestment Measures, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, 1868U.N.T.S. 186 [hereinafter TRIMs].

24. Understanding on Rules and Procedures Governing the Settlement of Disputes, Apr. 15, 1994, MarrakeshAgreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401.

25. GATT, supra note 20.26. Id. art. I.1.27. See PETER VAN DEN BOSSCHE, THE LAW AND POLICY OF THE WORLD TRADE ORGANIZATION 321 (2d ed.,

2008).28. Id.29. Id.30. Id. at 323.31. Id. at 324.


GATT Article III articulates the national-treatment (“NT”) principle: Partiesmay not subject foreign products to either “internal taxes” greater than thoseimposed on like domestic products32 or “laws, regulations and requirementsaffecting . . . internal sale” less favorable than those governing like domesticproducts.33 In other words, once foreign goods cross the border and their tariffhas been paid, GATT parties must treat them exactly the same as domestic goods.

GATT Article XI articulates the principle of converting non-tariff restrictionson trade—quotas, licenses, outright prohibitions, etc.—into tariffs, which canthen be easily published.34 Once tariffs were published, GATT parties endeav-ored to incrementally lower tariffs in a series of eight “rounds”—multilateralconferences where all parties were able to negotiate tariff cuts that, because ofMFN, would apply to all other parties.35 After seven successful rounds of tariffcuts between 1947 and 1979, the establishment of the WTO in 1995, and theunilateral lowering of tariffs, tariffs are now an order of magnitude lower thanthey were before the GATT and WTO.36 In particular, tariffs on renewable-energy goods are now quite low: averaging just 4.2% among all parties and 2.0%among parties currently negotiating the Environmental Goods Agreement(“EGA”),37 which make up 86% of trade in such goods.38

B. THE ECONOMICS OF FREE TRADE: COMPARATIVE ADVANTAGE, ECONOMIES OF SCALE,

AND RELENTLESS COMPETITION

Together, MFN, NT, and low tariffs build the foundations for free trade. MFNmeans that consumers are free to purchase goods from different foreign coun-tries, with no difference in treatment or taxation. NT means governments areprohibited from treating foreign goods differently than domestic goods in termsof higher taxes or more onerous regulation. And low tariffs mean that it is cheap

32. GATT, supra note 20, art. III.2.33. Id. art. III.4.34. Id. art. XI.1.35. The GATT Years: From Havana to Marrakesh, WTO, https://www.wto.org/english/thewto_e/whatis_e/

tif_e/fact4_e.htm (last visited Dec. 1, 2016).36. See Robert E. Baldwin, The Changing Nature of U.S. Trade Policy Since World War II, in THE

STRUCTURE AND EVOLUTION OF RECENT U.S. TRADE POLICY 6 (Robert E. Baldwin & Anne O. Krueger eds.,1984), http://www.nber.org/chapters/c5828.pdf (showing eighty-nine percent decrease in tariffs between 1930and 1979 due to first seven GATT rounds); see also Tariff Rate, Applied, Weighted Mean, All Products (%),WORLD BANK, http://data.worldbank.org/indicator/TM.TAX.MRCH.WM.AR.ZS (last visited Jan. 7, 2016)(showing an additional ninety-two percent decrease in tariffs between 1996 and 2010 due to establishment ofWTO).

37. See EUR. COMM’N, TRADE SUSTAINABILITY IMPACT ASSESSMENT ON THE ENVIRONMENTAL GOODS AGREE-MENT 11 n.2, 148 (2015), http://www.egatradesia.com/sites/all/docs/Final_Interim_Report-EGA_Trade_SIA_FINAL.pdf (listing negotiating parties and tariff lines currently considered for inclusion under EGA); see alsoTariff Analysis Online Facility, WTO, https://tao.wto.org/welcome.aspx?ReturnUrl�%2f%3fui%3d1&ui�1(last visited Jan. 7, 2016).

38. Environmental Goods Agreement, U.S. TRADE REP., https://ustr.gov/trade-agreements/other-initiatives/environmental-goods-agreement (last visited Jan. 7, 2016).


to import and export goods. All of this gives producers the freedom to manufac-ture and sell their products wherever they see fit on the basis of economics ratherthan politics. This, in turn, unleashes three important economic forces that drivedown costs: comparative advantage, economies of scale, and relentless globalcompetition.

Comparative advantage is a powerful theory, but it is abstract and oftenmisunderstood. Countries differ in the cost of making the same product due towhat economists call “productivity” and “factor endowments”—abstract con-cepts that capture, inter alia, the effects of technology, education, managerialprowess, regulation, and the relative abundance of labor, land, capital, andentrepreneurship.39 All of these differences mean that not only do absolute costsvary from country to country, but so do “opportunity costs”—the cost of makingone product in terms of the foregone opportunities of making another.40 So longas productivity and factor endowments differ from country to country, everycountry must, with mathematical certainty, have a unique “comparative advan-tage” that allows it to produce goods more efficiently than any other country.41

Smart countries maximize their utility by specializing in making productsaccording to their comparative advantage and trading for all other goods, whichthe removal of trade barriers allows.42 Economists’ models of comparativeadvantage offer different predictions depending on which aspects of reality theyinclude or ignore; however, all models agree that exploiting comparative advan-tage leads to cheaper products, both for individual countries and for the world.43

Economies of scale are also important, and, thankfully, a little more intuitive.Firms with complex manufacturing processes must spend significant capital onland, facilities, machines, and skilled, contracted labor before they can sell asingle product.44 These are what economists call “fixed costs”—costs that mustbe incurred regardless of how many units a firm produces.45 When a firmproduces only a few units, the prices of each individual unit must reflect thesehigh fixed costs. However, the cost per unit falls dramatically when they aredivided among a large quantity of output.46 Renewable-energy firms typicallyhave high fixed costs, because they must invent the necessary technology andbuild large, complex factories.47 Therefore, the best way to offset these high fixed

39. See PAUL R. KRUGMAN ET AL., INTERNATIONAL ECONOMICS: THEORY AND POLICY 25–28, 37, 52, 81–88 (9thed. 2012).

40. Id. at 25–28.41. Id. at 32, 52, 81–82.42. Id. at 34.43. Id. at 34, 64, 90.44. Id. at 158.45. Id.46. Id. at 159.47. See id.


costs is with volume: the more, the better.48 This, in turn, means the world is moreefficient when markets are large enough to allow several facilities to achieveeconomies of scale while preserving competition.49 Conversely, barriers to tradeprevent producers from achieving economies of scale in small, domestic markets,which makes goods more expensive.50

Finally, global competition is crucial, both for the efficiency and the innovationthat renewables need. All firms are much more likely to innovate if they know anew product may gain them market share or a competitor’s new product may costthem market share.51 But renewables, as discussed above, have high fixed costs.Therefore, a small, protected market may provide only enough volume for one ortwo firms to sufficiently offset fixed costs.52 Such firms therefore have a naturalmonopoly or duopoly, which weakens the powerful incentives from competi-tion.53 Economically rational firms charge consumers a higher price, knowingthat consumers have nowhere else to turn.54 The same firms would also cut backon research and development expenses so that products remain expensive andtechnologically backward.55 The way to avoid this trap is for all firms to competein the global market.56 This allows firms to produce at cost-efficient volumes, butconcurrently ensures that there are enough firms for relentless competition.57

C. THE EFFECTS OF FREE TRADE: CHEAPER RENEWABLES SOONER

What effects have comparative advantage, economies of scale, and globalcompetition—guaranteed around the world by the GATT’s MFN, NT, and lowtariffs—had on renewables producers? It is clear that, under the WTO regime, thecost of renewables has fallen significantly over the past two decades.58 Thequestion is whether this drop in costs has occurred because of free trade or inspite of free trade.

48. See id. at 158.49. Id. at 160.50. Id. at 164.51. Id. at 165–66.52. Id. at 165.53. Id. at 166–67. For an illustrative case study of this phenomenon, see THEODORE H. MORAN, FOREIGN

DIRECT INVESTMENT AND DEVELOPMENT 47 (1998). Before NAFTA, Mexico imposed high tariffs and domesticcontent requirements on computer manufacturers, which limited competition and gave computer manufacturerswith high fixed costs a monopoly within the Mexican market. Id. The result was higher prices and laggingtechnology for Mexican computer consumers. Id. Similar phenomena can be seen with other high fixed-costindustries in other developing countries, such as electronics, automobiles, petrochemicals, and computers. Id.at 44.

54. KRUGMAN ET AL., supra note 39, at 166.55. See id. at 172.56. Id. at 166. See also MORAN, supra note 53 and accompanying discussion.57. KRUGMAN ET AL., supra note 39, at 165–66.58. See INT’L RENEWABLE ENERGY AGENCY, RENEWABLE POWER GENERATION COSTS IN 2014, at 29, 70 (2015),

http://www.irena.org/documentdownloads/publications/irena_re_power_costs_2014_report.pdf.


The story of the Danish wind-turbine manufacturer Vestas suggests that thebest renewables firms respond to free trade in the same way as their counterpartsin other innovative, high fixed-costs industries. Vestas, the largest wind-turbinemanufacturer in the world,59 established itself as a turbine manufacturer inDenmark,60 a jurisdiction whose low tariffs and non-tariff barriers61 means thatVestas has had to grapple with the opportunities and challenges of free trade sinceits foundation. And Vestas seems to have responded to these opportunities andchallenges exactly as it should. First, Vestas has scoured the globe, seeking thecomparative advantage for each stage of production in order to cut costs: The firmcarries out most of its management, research, and development in super-productive Denmark, but manufactures various turbine components in Brazil,China, the EU, India, and the United States, with the complexity of thecomponent roughly corresponding with each country’s productivity and relativeabundance of low-skilled, medium-skilled, and high-skilled labor.62 Second,Vestas is taking advantage of economies of scale: The company recentlyconsolidated its thirty-one manufacturing sites around the world to nineteen, allwhile increasing megawatts shipped by an average of fourteen percent each yearand continuing to reduce the cost of producing one megawatt hour.63 These scalesmake sense for a company that sells its turbines and accessories in seventy-threecountries around the world.64 Finally, Vestas candidly acknowledges that it facesfierce competition from other turbine producers, but it stays ahead of thecompetition through continuous innovation that allows it to cut costs.65 Vestas isa large, easily researchable company, but we would expect the same phenomenato drive the successes of other producers of panels and turbines.

Furthermore, the effects of ending the WTO’s free trade regime on a companylike Vestas are foreseeable. Vestas would have to relocate its production facilitiesto accord with politics, not comparative advantage, and production costs wouldrise. Vestas would also have to spread its production across jurisdictions insistingon localized production, destroying economies of scale and causing productioncosts to rise again. Finally, Vestas would find itself in a monopolistic position in

59. VESTAS, ANNUAL REPORT 2014, at 4 (2015), https://www.vestas.com//media/vestas/investor/investor%20pdf/financial%20reports/2014/ar/150211_annual%20report%202014.pdf.

60. Company Profile: Vestas History, VESTAS, https://www.vestas.com/en/about/profile#!history (last visitedDec. 1, 2016).

61. See TERRY MILLER & ANTHONY B. KIM, HERITAGE FOUND., 2015 INDEX OF ECONOMIC FREEDOM 4 (2015).In 2015, Denmark earned a score of 88 out of 100 for “trade freedom,” which takes into account a country’stariff and non-tariff barriers. Id. This put Denmark in the top ten countries in the world for trade freedom. Id.

62. See VESTAS, ANNUAL REPORT 2013, at 26 (2014), https://www.vestas.com//media/vestas/investor/investor%20pdf/announcements/2014/140203_ca_uk_annualreport2013.pdf; see generally VESTAS, ANNUAL REPORT 2014,supra note 59 (demonstrating profitability of strategy of consolidation).

63. VESTAS, ANNUAL REPORT 2013, supra note 62, at 25.64. VESTAS, ANNUAL REPORT 2014, supra note 59, at 2.65. VESTAS, ANNUAL REPORT 2013, supra note 62, at 20; see also Company Profile: Corporate Strategy,

VESTAS, https://www.vestas.com/en/about/profile#!strategy (last visited Dec. 1, 2016).


several smaller markets. Research and development spending would becomesuperfluous, and innovation would slow. The date when Vestas’ wind turbinescould compete with fossil fuels on cost would be pushed further into the future.

II. HOW THE WTO DISCRIMINATES BETWEEN BENEFICIAL AND HARMFUL

SUPPORT FOR RENEWABLES

Comparative advantage, economies of scale, and relentless competition are all,essentially, arguments for free markets. Sometimes, however, markets fail. Inparticular, climate change seems to be “the greatest market failure the world hasever seen.”66 The market’s failure to address the problem of climate changesuggests that a non-market solution may be necessary.

One common non-market solution is government intervention. Perhaps, there-fore, the WTO should enforce free trade less rigidly, allowing governments tointervene and correct the market failure of climate change. In particular, perhapsthe WTO should enforce its prohibitions on subsidies less rigidly, given thatsubsidies seem to be a crucial tool for stimulating the growth of the renewablesindustry.67

This section agrees that climate change is a market failure and subsidies arepart of the solution to that failure. However, this section also argues that WTOdisciplines on subsidies are beneficial for renewables, because they ensure thatsubsidies are applied in a way that preserves free trade’s ability to dramaticallycut costs. Far from preventing WTO members from subsidizing renewables, theWTO’s disciplines on subsidies serve the important purpose of ensuring thatmembers’ subsidies do not end up doing more harm than good.

This section proceeds as follows. Section II.A identifies the market failuresthought to underlie climate change and therefore require subsidies. Section II.Bconsiders WTO members’ abilities to address these market failures in compliancewith the three WTO disciplines on subsidies: Article 5 of the Agreement onSubsidies and Countervailing Measures (“SCM”),68 which disciplines subsidies

66. STERN, supra note 9, at viii.67. For arguments in favor of rethinking the WTO subsidy regimes to support renewables, see Paolo Davide

Farah & Elena Cima, The World Trade Organization, Renewable Energy Subsidies, and the Case of Feed-inTariffs: Time for Reform toward Sustainable Development?, 27 GEO. INT’L ENVTL. L. REV. 515 (2015); see alsoLuca Rubini, Ain’t Wastin’ Time No More: Subsidies for Renewable Energy, the SCM Agreement, Policy Space,and Law Reform, 15 J. INT’L ECON. L. 525 (2012).

68. SCM, supra note 23, art. 5. The Agreement on Subsidies and Countervailing Measures came into force in1995 as part of a package of new agreements that complemented the much older GATT. See MarrakeshAgreement, supra note 21. Many WTO members’ domestic law and GATT Article XVI had long recognizedthat subsidies can affect trade. See, e.g., Dingley Act of 1897, ch. 11, 30 Stat. 151 (repealed 1979). Based on thisexperience, the architects of the WTO included in the SCM two mechanisms for members to address othermembers’ subsidies that had unfair effects on trade: (1) bringing a dispute before the WTO, SCM, supra note 23,art. 7.1.; and (2) imposing a “countervailing duty” to counteract the subsidy, so long as the countervailing duty isimposed according to certain principles, id. art. 10. (The use of countervailing duties as a remedy predates theSCM, but was incorporated into and disciplined by the SCM. See GATT, supra note 20, art. VI.) Procedurally,


that harm other members’ industries; SCM Article 3.1(a), which disciplinesexport subsidies;69 and SCM Article 3.1(b), which disciplines subsidies contin-gent on local content.70 Section II.C considers the Agreement on Trade-RelatedInvestment Measures, an agreement that has become a backstop to governmeasures that support renewable energy in ways that distort free trade.71 Finally,sections II.D and II.E analyze four recent cases that applied the SCM andTRIMs—Chinese Photovoltaics, Canada–Renewable Energy, Canada—Feed-inTariff, and India—Solar Cells—and argue that WTO law provided for the besteconomic and environmental outcome for each.

A. THE NEED TO SUPPORT RENEWABLES

The world’s failure to address climate change may be prima facie evidence ofmarket failure. But how, precisely, have renewable-energy markets failed? Thisquestion is important, because reckless government intervention may end updestroying the aspects of the market that do actually work, undermining theforces shown to be driving down renewables’ costs. An apt analogy is to a brainsurgeon: Even if she knows her patient has a neurological disorder, she should notwilly-nilly slice open a patient’s brain without properly diagnosing the problem.

The consensus seems to be that energy markets suffer from what economistscall “externalities”72—a type of market failure that occurs when one economicactor’s private costs do not align with society’s public costs.73 Specifically,traditional-energy producers create “negative externalities;” they escape most ofthe costs of their GHG emissions, and therefore lack the incentives to minimizethe costs they would incur if they bore all those costs.74 Conversely, renewable-energy producers create “positive externalities;” they cannot fully capture thebenefits of clean energy that they provide to society, and therefore lack theincentives to maximize production if they could profit from every such benefitprovided.75 Economists’ solution to both of these problems is to “internalize”these externalities—force traditional-energy producers to pay society for pollu-

these two mechanisms are very different; substantively, however, both mechanisms differentiate between“actionable subsidies” and “prohibited subsidies.”

69. SCM, supra note 23, art. 3.1(a).70. Id. art. 3.1(b).71. TRIMs, supra note 23, art. 2, Annex 1(a)–(b).72. See STERN, supra note 9, at 24–25; see also Thomas Helbling, What are Externalities?, 47 FIN. & DEV.,

no. 4, Dec. 2010, at 48, 49; Michael Greenstone, Paying the Cost of Climate Change, BROOKINGS INST. (Sept.19, 2014), http://www.brookings.edu/blogs/planetpolicy/posts/2014/09/19-paying-cost-of-climate-change-greenstone.

73. See JONATHAN M. HARRIS & BRIAN ROACH, ENVIRONMENTAL AND NATURAL RESOURCE ECONOMICS: ACONTEMPORARY APPROACH 35–39 (3d ed. 2013).

74. Id.75. Id.


tion and force society to pay renewable-energy producers for clean energy.76

Subsidies are a popular solution to this market failure. By taxing society to payrenewable-energy producers for the benefits they provide but currently cannotcapture, subsidies help internalize externalities for renewable energy such thatthe optimal amount of clean energy is produced. Most plans for promotingrenewable energy, therefore, include some subsidies for renewable energy. Thequestion is how best to apply these subsidies.

B. THE AGREEMENT ON SUBSIDIES AND COUNTERVAILING MEASURES (“SCM”)

Even if subsidies can be used to address the market failures that underlieclimate change, such subsidies must not be applied in a way that risks interferingwith the forces of free trade discussed above. For example, we do not want asubsidy that internalizes dirty-energy producers’ externalities but also makesrenewables more expensive for consumers, specifically by eliminating compara-tive advantage, economies of scale, or global competition. Returning to the brainsurgeon analogy: Even if the surgeon knows the location of a neurologicaldisorder, she must think very carefully about whether and how to remove thetumor without damaging surrounding brain structures.

The WTO’s Agreement on Subsidies and Countervailing Measures77 strikesthis balance between subsidies that correct the climate-change market failure andsubsidies that end up causing more market failures. The WTO strikes this balancein three ways. First, the SCM’s definition of subsidy excludes many beneficialgovernment support measures from the agreement’s jurisdiction entirely, asdiscussed in section II.B.1. Second, the SCM permits many measures that domeet the SCM’s definition of a subsidy, but prohibits those that cause adverseeffects on other WTO members’ industries, as discussed in section II.B.2. Third,the SCM prohibits trade-distorting subsidies contingent on exports or localcontent, as discussed in section II.B.3.

1. SCM Articles 1 and 2: Government Support Measures Outside of the SCM

SCM Articles 1 and 2 set forth the definition of a “subsidy” that triggers theSCM. The definition begins broadly: subsidies include grants, loans, loanguarantees, equity infusions, tax credits, the provision of goods and services, orprice support.78 This definition would capture almost any support a governmentmight provide, except that it is narrowed by two additional criteria. First, asubsidy must confer a “benefit,”79 which has been interpreted to mean that therecipient must get something on terms more favorable than she could get

76. Id.77. See supra note 68; see also GATT, supra note 20, art. XVI.78. SCM, supra note 23, art. 1.1(a)(1).79. Id. art. 1.1(b).


vis-a-vis the market.80 This requirement releases many government supportmeasures for renewables from the SCM. For example, a government programthat provides grants, loans, or goods to renewable-energy producers at the samerate as the private sector does not implicate the SCM at all.81 Second, a subsidymust be “specific”—limited, either in law or in fact, to certain industries orenterprises.82 This requirement also releases many government support measuresfrom the SCM. For example, tax credits to consumers of renewable energy do notimplicate the SCM, so long as they are available to energy consumers regardlessof industry or enterprise.83 In short, the SCM’s definition of a subsidy leavessignificant policy space for WTO members to address the underlying marketfailure of climate change.

2. SCM Article 5: Actionable Subsidies that Harm Other Members’ Industries

Once a subsidy has been established under SCM Article 1 and 2, SCM Article5 prohibits subsidies that actually cause adverse effects on another WTOmember’s industry, so-called “actionable subsidies.”84 Specifically, a successfulSCM Article 5 claim requires that at least two necessary conditions be met. First,the subsidy must be the cause of injury, a requirement that, like but-for causeunder U.S. tort law, is designed to prevent injured industries from gainingprotection when their injuries are due to other factors, such as general industrydecline or their own incompetence.85 Second, there must be actual adverseeffects, the most commonly alleged of which is actual “injury.”86 The WTO’sdefinition of injury is broadly written to include increased volumes of subsidizedimports, price undercutting, and the actual impact on the domestic industry interms of output, sales, market share, return on investment, inventories, andemployment87—harms that actually matter to industries. Given these necessary

80. Appellate Body Report, Canada—Measures Affecting the Export of Civilian Aircraft, ¶ 149, WTO Doc.WT/DS70/AB/R (adopted Aug. 20, 1999).

81. See VAN DEN BOSSCHE, supra note 27, at 566–67.82. SCM, supra note 23, art. 2.1.83. See VAN DEN BOSSCHE, supra note 27, 568–69.84. SCM, supra note 23, art. 5.85. Id.86. Id.87. See id. art. 15. The SCM includes two other adverse effects, both of which are rarely used. The first is

“nullification or impairment of benefits.” Id. art. 5. This describes a situation in which WTO members negotiatefor accession to the WTO, and then one member adopts measures that eliminate or reduce a benefit that anotherWTO member reasonably and legitimately expected would accrue from WTO membership. Panel Report,Japan—Measures Affecting Consumer Photographic Film and Paper, ¶ 10.82, WTO Doc. WT/DS44/R(adopted Apr. 22, 1998). The vagueness of this doctrine may seem conducive to litigation, but it is rarely used:WTO panels and the Appellate Body have expressed concern about this vagueness and applied it sparingly.Id. ¶ 10.38. Finally, actionable subsidies are also sometimes alleged to cause “serious prejudice.” SCM, supranote 23, art. 5.(c). “Serious prejudice” can be thought of as a sort of shortcut for administrability purposes.Instead of inquiring into facts and evidence to determine whether industries have actually suffered harm, harm issimply “deemed to exist” whenever total ad valorem subsidization exceeds five percent of a product or subsidies


conditions, one way to think of SCM Article 5 is essentially as a “no harm, nofoul” rule: A subsidy is permitted so long as it does not have an adverse effect onanother member’s industry.88

This “no harm, no foul” rule leaves significant policy space for WTO membersto address climate change, but also limits WTO members’ actions that harm othermembers. We clearly want WTO members to subsidize their renewable-energyindustries where needed, but do we want them to do so to the extent that theybankrupt other members’ industries? This hardly seems conducive to mitigatingclimate change. SCM Article 5 is less an example of WTO overreach, and morelike an example of how WTO law allows member states to address the marketfailure underlying climate change—the fact that producers of renewables are notfully compensated for the benefit they provide society—but prevents membersfrom intervening so much that they inadvertently cause additional marketfailures. Furthermore, as we shall see in the Chinese Photovoltaics case, dis-cussed below, SCM Article 5 makes environmental and economic sense as well:if renewable-energy companies’ fortunes depend on government subsidization,then a firm’s own exploitation of comparative advantage and ability to competematter less, and mercurial policies and government relations matter more.89

3. SCM Article 3: Prohibited Subsidies that Distort Trade

SCM Article 3.1(a) governs export subsidies—subsidies contingent on exportperformance, whether in law or in fact.90 The law here is quite simple: Exportsubsidies are per se inconsistent with the WTO, regardless of actual effect ontrading partners.91 Similarly, SCM Article 3.1(b) governs local content subsidies—subsidies contingent on the use of domestic good over imported goods.92 As withexport subsidies, the law here is quite simple: Local content subsidies are per seinconsistent with the WTO, regardless of actual effect on trading partners.93

Both export and local-content subsidies are prohibited so strictly because theyare likely to affect other members’ industries. Unlike an actionable subsidy,whose effects are quite often only domestic, export and local content subsidiesfocus squarely on trade: exports and imports, respectively. Therefore, it seems tomake sense that WTO law regulates them more closely.

cover the operating losses sustained by an industry or enterprise. Id. art. 6.1(a)–(c). In other words, WTOmembers cannot give so much support that the support divided by the sales is greater than five percent, or thatallows enterprises that lose money to continue to produce. Neither nullification nor serious prejudice have everbeen alleged in a renewables case.

88. See id.89. See infra, sections II.D.1 and II.D.2.90. SCM, supra note 23, art. 3.1(a).91. Id. art. 3.2.92. Id. art. 3.1(b).93. Id. art. 3.2.


C. THE AGREEMENT ON TRADE-RELATED INVESTMENT MEASURES (“TRIMS”): A

BACKSTOP FOR THE SCM

The Agreement on Trade-Related Investment Measures seems at first glance tobe one of the most unassuming WTO agreements, with only nine articles and anannex.94 TRIMs was only intended to be a barebones stand-in until a morecomprehensive agreement governing international investment could be negoti-ated,95 a goal that was never achieved.96

The barebones provisions of TRIMs are as follows. TRIMs Article 2.1 statesthat “no Member shall apply any TRIM that is inconsistent with the provisions ofArticle III or Article XI of GATT 1994.”97 TRIMs declines to precisely definewhat a trade-related investment measure is; instead, TRIMs Article 2.2 directsreaders to an “Illustrative List” of trade-related investment measures inconsistentwith the NT or conversion to tariffs.98 The Illustrative List includes measures thatrequire the purchase of domestic products or limit the purchase of importedproducts,99 as well as import quotas, export quotas, and restrictions on access toforeign exchange.100 TRIMs was intended to prohibit government measures thatpermitted foreign investment but conditioned this permission on investors’compliance with a series of measures intended to promote the trade policy.101

Examples of such measures might include: conditioning a permit for foreigninvestment on using locally produced inputs, conditioning a permit for foreigninvestment on exporting a certain value of goods, or denying a foreign investoraccess to foreign exchange so that the investor would be forced to spend proceedsfrom the investment in the host country.102

TRIMs is relevant to a discussion of support for renewable energy because ithas become an important WTO agreement for regulating government support thatis not clearly a subsidy under SCM Article 1, but which nevertheless imposes a

94. See TRIMs, supra note 23.95. The TRIMs preamble quotes the Punta del Este Declaration: “Considering that Ministers agreed in the

Punta del Este Declaration that ‘[f]ollowing an examination of the operation of GATT Articles related to thetrade restrictive and distorting effects of investment measures, negotiations should elaborate, as appropriate,further provisions that may be necessary to avoid such adverse effects on trade.’” TRIMs, supra note 23, pmbl.;General Agreement on Tariffs and Trade, Ministerial Declaration of 20 September 1986, Part I.D, 25 I.L.M.1624 (1986).

96. See Katia Tieleman, The Failure of the Multilateral Agreement on Investment (MAI) and the Absence of aGlobal Public Policy Network, U.N. VISION PROJECT ON GLOBAL PUB. POL’Y NETWORKS 3 (2000), https://web.archive.org/web/20120214110423/http://www.gppi.net/fileadmin/gppi/Tieleman_MAI_GPP_Network.pdf.

97. TRIMs, supra note 23, art. 2.1. As discussed supra in section I.A, GATT Article III prescribes nationaltreatment, and GATT Article XI prescribes converting non-tariff restrictions on trade to tariffs.

98. TRIMs, supra note 23, art. 2.2.99. Id. at Annex 1.100. Id. at Annex 2.101. See, e.g., THEODORE H. MORAN, BEYOND SWEATSHOPS: FOREIGN DIRECT INVESTMENT AND GLOBALIZA-

TION IN DEVELOPING COUNTRIES 111–16 (2002).102. Id.


“local content requirement” (“LCR”). An LCR is a measure—such as a statute,regulation, or even a practice—which allows an entrepreneur to invest ormanufacture in a country, but only under the condition that the manufacturer uselocal rather than foreign inputs. While parties must prove each of the elements ofSCM Article 1 to bring a dispute under SCM Article 3, the lack of a definition of atrade-related investment measure and the agreement’s Illustrative List seem torequire only that parties show some sort of LCR. Thus, as we shall see in thediscussion of the Canada—Renewable Energy, Canada—Feed-In Tariff, andIndia—Solar Cells cases,103 TRIMs can serve as a sort of backstop for SCMcases when proving the existence of a subsidy is difficult or impossible, but themeasure in question violates the spirit of the SCM by imposing LCRs. LCRssignificantly distort trade because they force entrepreneurs to select suppliers andsub-contractors based on geography and politics rather than economics andefficiency.104 Accordingly, TRIMs also helps ensure that governments’ efforts toaddress the market failure underlying climate change do not cause more harmthan good.

Recent WTO cases involving renewable energy appear to have brought aboutan overall increase in TRIMs activity. From the agreement’s entry into force in1995 until 2010—the year in which the first renewable energy TRIMs disputewas initiated—there were twenty-six requests for consultation.105 From 2010through 2016, there were sixteen requests for consultation, half of which weredirectly related to renewable energy.106 On average, TRIMs consultations havebeen requested 1.6 more times per year than they were prior to the advent ofrenewable-energy disputes under TRIMs.

D. CHINESE PHOTOVOLTAICS: ACTIONABLE AND EXPORT SUBSIDIES

The Chinese Photovoltaics case demonstrates the application of SCM prin-ciples to actionable and export subsidies, as discussed in section II.D.1, as well asthe economic and environmental rationales for such principles, as discussed insection II.D.2.

1. SCM Article 3.1(b) and SCM Article 5 Applied to China’s Solar Subsidies

In 2011, the Coalition for American Solar Manufacturing (“CASM”)107—ledby U.S. solar-cell manufacturer SolarWorld Industries America Inc.—petitioned

103. See infra, section II.E.104. See, e.g., MORAN, supra note 101, at 111–16.105. See Disputes by Agreement: Trade-Related Investment Measures (TRIMs), WTO, https://www.wto.org/

english/tratop_e/dispu_e/dispu_agreements_index_e.htm?id�A25 (last visited Dec. 2, 2016).106. Id.107. CASM is an association of seven U.S. crystalline silicon solar cells and panels producers, the largest of

which is SolarWorld Industries America, Inc., the American subsidiary of the German SolarWorld AG. SeePress Release, Coal. for Am. Solar Mfg., U.S. Manufacturers of Solar Cells File Dumping and Subsidy Petitions


the U.S. Department of Commerce (“DOC”) and International Trade Commis-sion (“ITC”) to impose countervailing duties on imports of crystalline siliconphotovoltaic cells from China.108 CASM argued that several Chinese governmentprograms constituted subsidies under the U.S. domestic analogue to SCM Article1.109 Furthermore, these subsidies were either export contingent, in violation ofthe U.S. domestic analogue to SCM Article 3.1(a), or had an adverse effect onU.S. photovoltaic manufacturers, in violation of the U.S. domestic analogue toSCM Article 5.110 In fact, CASM argued that Chinese subsidies were so large thatthey reduced the price of solar panels by forty percent in one year, leading to theclosure or downsizing of seven U.S. solar plants and the elimination of thousandsof U.S. jobs.111

U.S. domestic trade authorities agreed with CASM that Chinese subsidiesviolated WTO principles, causing harm to the U.S. solar industry. DOC examinedseveral Chinese programs to support the Chinese solar industry and found thatseveral constituted actionable and export subsidies to Chinese photovoltaicmanufacturers, in the form of grants, preferential loans, the provision of polysili-con and land at discounted prices, and various tax breaks.112 In particular, DOCfound that a Chinese program designed to promote “famous brands” abroad andvarious one-off grants to photovoltaic producers were contingent on producers’

Against China (Oct. 19, 2011), http://www.americansolarmanufacturing.org/news-releases/10-19-11-casm-files-illegal-dumping-subsidy-petition.htm.

108. See Petition for the Imposition of Antidumping and Countervailing Duties: Crystalline SiliconPhotovoltaic Cells, Whether or Not Assembled into Modules, from the People’s Republic of China, DOC Inv.Nos. A-570-979, C-570-980, USITC Inv. Nos. 701-TA-481, 731-TA-1190 (Oct. 19, 2011), https://www.troutmansanders.com/files/upload/Crystalline_Petition_Vol1.pdf [hereinafter CASM Petition]. The CASM pe-tition alleged both dumping and subsidies, see id., but this Note focuses only on the subsidies claim.

109. Technically, CASM filed its petition pursuant to sections 701 and 731 of the U.S. Tariff Act of 1930, 19U.S.C. §§ 1671, 1673 (2012). For our purposes, we can regard these U.S. statutes as equivalent to SCM arts. 1,3, and 5. The reasons for this equivalence are complex: Countervailing duties actually predate the WTO. See,e.g., Dingley Act of 1897, ch. 11, 30 Stat. 151 (repealed 1979) (first U.S. countervailing duty law, for sugar). TheSCM, unlike other WTO agreements, actually allows for parallel enforcement mechanisms: a WTO membermay (1) bring a subsidies dispute before a WTO panel, SCM, supra note 23, art. 7.1; or (2) unilaterally impose acountervailing duty to counteract another member’s subsidies, so long as the countervailing duty is imposed inaccordance with SCM principles, including SCM art. 3 and SCM art. 5. Id. art. 10. The United States brought itscountervailing duty law into compliance with the SCM through the Uruguay Round Agreements Act, Pub. L.No. 103-465, 108 Stat. 4809 (codified as amended in scattered sections of 19 U.S.C.). Therefore, the legalprinciples in the Chinese Photovoltaics case are the same if the dispute were brought before a WTO panel, evenif the cases are procedurally different.

110. See CASM Petition, supra note 108.111. Coal. for Am. Solar Mfg., supra note 107.112. Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled Into Modules, from the People’s

Republic of China: Preliminary Affirmative Countervailing Duty Determination, 77 Fed. Reg. 17,439,17,449–54 (Mar. 26, 2012) [hereinafter Chinese Photovoltaics (Preliminary)]; see also Crystalline SiliconPhotovoltaic Cells, Whether or Not Assembled Into Modules, from the People’s Republic of China: FinalAffirmative Countervailing Duty Determination and Final Affirmative Critical Circumstances Determination,77 Fed. Reg. 63,788 (Oct. 17, 2012) [hereinafter Chinese Photovoltaics (Final)]. Due to the quirks of U.S.countervailing duty law, the DOC determines whether subsidization occurs, and the ITC determines whetherthis subsidization causes adverse effects. 19 U.S.C. § 1671a.


export performance and were therefore export subsidies.113 The ITC examinedthe effects of the Chinese subsidies on U.S. photovoltaic manufacturers andfound that subsidized Chinese imports had actually caused a significant decline inU.S. manufacturers’ market share, forcing many U.S. solar manufacturers todownsize or exit the market entirely.114 Accordingly, the United States imposedcountervailing duties of about fifteen percent on imports of Chinesephotovoltaics.115

2. The Economic and Environmental Effects of China’s Solar Subsidies

China’s subsidies for solar panels initially seem to be conducive to climateprogress. The Chinese government’s support helped solar-panel producers inter-nalize some of the positive externalities they were providing to society but wereotherwise unable to capture, which is exactly what needs to happen for cheaperrenewables to arrive more quickly. Furthermore, CASM itself alleged that thesubsidies had reduced the price of solar panels by forty percent in one year.116

Given the benefits of lower prices for renewables, concern for U.S. jobs seemscounterproductive. The quest for cheaper renewables seems to demand thisruthless competition, and if U.S. solar manufacturers cannot keep up with thiscost-cutting, perhaps they should exit the business.

A closer look demonstrates that China’s export and actionable subsidies likelycaused more market failures than they solved, actually delaying climate progress.Specifically, Chinese subsidies seem to have had three counterproductive effects:(1) raising the price of solar panels within China, (2) ensuring that the globalsolar industry develops according to political whims rather than true comparativeadvantage, and (3) triggering a counterproductive, tit-for-tat trade war.

First, export subsidies raise prices for consumers in the exporting country, evenif they lower prices for consumers elsewhere.117 The economic theory behind thisis intuitive. If the Chinese government puts in place a subsidy contingent onexport performance, Chinese producers know they can earn the international

113. Chinese Photovoltaics (Preliminary), 77 Fed. Reg. at 17,453–54.114. Crystalline Silicon Photovoltaic Cells and Modules from China, Inv. Nos. 701-TA-481, 731-TA-1190,

USITC Pub. 4360 (Nov. 2012) (Final).115. Chinese Photovoltaics (Final), 77 Fed. Reg. at 63,789. China later challenged these countervailing

duties before a WTO panel and the WTO Appellate Body, and was able to overturn some countervailing dutieson complex legal grounds not at issue here: (1) that the state-owned entities providing some subsidies were notthe Chinese government, and (2) that the United States improperly imposed both antidumping and countervail-ing duties. See Appellate Body Report, United States—Countervailing Duty Measures on Certain Products fromChina, ¶ 5.1, WTO Doc. WT/DS437/AB/R (Dec. 18, 2014). However, the Appellate Body actually overturnedonly a fraction of the specific U.S. countervailing duties, allowing most to stay in place. Id.

116. See Coal. for Am. Solar Mfg., supra note 107.117. It is also worth noting that China’s export subsidies probably lowered prices for American consumers

only because China is a price maker—a producer big enough for its decisions to have an impact on worldmarkets—rather than a price taker. See KRUGMAN ET AL., supra note 39, at 203–04, 210. Export subsidies forsmaller countries would likely not even have the benefit of lower prices for consumers abroad.


market price for their solar panels, as well as the amount of the export bounty.118

Thus, it makes little sense for Chinese producers to sell to Chinese consumers,unless the consumers are willing to pay the international market price plus theprice of the export bounty.119 This means higher prices for domestic consum-ers.120 The theory seems to bear out in practice. Prices for solar panels in Chinaseemed to be significantly higher than prices outside China, as evidenced by theantidumping margins of about thirty percent DOC found in the same case.121

Accordingly, Chinese producers exported almost all of the solar panels theyproduced: China exported about ninety-five percent of its solar panels in 2010,during the height of its subsidy program.122 This is a particularly environmentallyunfriendly result, because it means that relatively few solar panels were installedin China before 2012, despite the country’s status as the biggest carbon emitter inthe world.123

Second, export and actionable subsidies can distort comparative advantage,meaning that industries develop where it is politically but not economicallyrational for them to do so. This in turn probably means higher costs in the longrun, even if prices are lower in the short run. For example, the United States isthought to have a comparative advantage in human- and physical-capital-intensive products, while China is thought to have a comparative advantage inlabor-intensive products.124 This means that the United States should actually bein a better position to manufacture solar panels at a lower cost, because solarpanels require relatively more human and physical capital than low-skilledlabor.125 A close analysis of the economics of China’s solar industry reveals thatalmost all of China’s price advantage in solar can be explained by economies ofscale and indirect government support, not by comparative advantage due to anabundance of cheap labor.126 China’s aggressive subsidization may have under-mined firms in the United States that probably enjoyed a comparative advantagein solar panels, but which clearly lacked a government willing to violateinternational trade law to support their quest for global markets. And fewer

118. See id. at 204.119. See id.120. See id.121. Chinese Photovoltaics (Final), 77 Fed. Reg. at 63,791, 63,795.122. Bruce Einhorn, Firing Up China’s Solar Market, BLOOMBERG (Mar. 15, 2012, 7:03 PM), http://www.

bloomberg.com/news/articles/2012-03-15/firing-up-chinas-solar-market. This number fell to about seventypercent by 2012, after the United States initiated countervailing duty investigations. Id.

123. JOS G.J. OLIVER ET AL., EUR. COMM’N JOINT RES. CTR., TRENDS IN GLOBAL CO2 EMISSIONS: 2015 REPORT

4 (2015).124. Frank A. Wolak, Can the U.S. Compete with China on Green Tech?: Our Comparative Advantage, N.Y.

TIMES (Jan. 19, 2011, 11:01 AM), http://www.nytimes.com/roomfordebate/2011/01/18/can-the-us-compete-with-china-on-green-tech/our-comparative-advantage.

125. Id.126. Alan C. Goodrich et al., Assessing the Drivers of Regional Trends in Solar Photovoltaic Manufacturing,

6 ENERGY & ENVTL. SCI. 2811, 2813–15 (2013).


competitive solar-panel firms probably means a world with fewer choices forsolar-panel consumers, which should translate into higher prices or lower quality.

Finally, export and actionable subsidies that harm another WTO member’sindustry are likely to provoke a response from that member, which can causewhat economists call a “trade war.”127 A trade war can be understood as anotherexample of the classic prisoner’s dilemma: If two competing governments canreach an agreement like the SCM, both can elect not to subsidize their industries,which allows them to forgo the cost of subsidization.128 Without such anagreement, both governments know that if their competitor subsidizes and theydo not, they will suffer while their competitor benefits.129 Both governmentsrationally choose to subsidize, such that the benefits of subsidization are counter-acted, but both governments must bear the costs.130 Although this will result inlower-cost renewables to consumers, the resources devoted to these counteractedsubsidies must be diverted from somewhere else, which means governmentsmust cut other programs, raise taxes, or some combination thereof. In short, evenif consumers pay lower prices, society as a whole must nevertheless pay. Thistheory also seems to bear out in practice, as evidenced by the multi-yearinternational litigation over Chinese solar subsidies discussed above.131 Further-more, had China been allowed to maintain its subsidies without consequence,other governments may have felt pressure to enact similar measures, onlyexacerbating the problem.

For all of these reasons, export and actionable subsidies that injure othercountries’ industries create more problems than they solve, thus slowing therenewables revolution. Therefore, subsidies for renewable energy are actuallymore effective when disciplined by SCM Articles 3.1(a) and 5. Enforcement ofthese provisions would allow governments to subsidize the consumption of solarand wind energy, curing a market failure behind climate change. At the sametime, enforcement of these provisions would prevent counterproductive practiceswhereby governments distort the development of the nascent solar and windindustries in their attempts to build up their local renewable-energy industries.

E. CANADA—RENEWABLE ENERGY, CANADA—FEED-IN TARIFF, AND INDIA—SOLAR CELLS:

LOCAL CONTENT REQUIREMENTS (“LCRS”)

The Canada—Renewable Energy, Canada—Feed-in Tariff, and India—SolarCells cases demonstrate the application of SCM and TRIMs law to measures thatsupport renewable energy but impose LCRs, as discussed in section II.E.1, as

127. KRUGMAN ET AL., supra note 39, at 235.128. See id. at 236.129. See id.130. See id.131. See supra, sections II.D.1 and II.D.2.


well as the economic and environmental rationales for such laws, as discussed insection II.E.2.

1. SCM Article 3.1(a) and TRIMs Applied to Canada and India’s LCRs

Canada—Renewable Energy and Canada—Feed-in Tariff were brought by theEuropean Union and Japan, respectively, to challenge the same measure: a“feed-in tariff” (“FIT”) put in place by the Canadian province of Ontario.132

Ontario’s FIT worked like many others: The government promised to purchaseelectricity from renewable-energy producers at high, predetermined prices,which provided a guaranteed market that producers could rely upon to attractinvestment and innovation.133 Generally, FITs are seen as an economicallyefficient way to foster renewable-energy use. FITs directly address the marketfailure thought to underlie climate change by helping energy producers internal-ize the positive externalities they create.134 However, Ontario’s FIT was differentfrom most in one important way: In order to benefit from the program, energyproducers had to use panels and turbines with “Minimum Required DomesticContent Levels” of twenty-five to sixty percent.135

The European Union and Japan challenged Ontario’s FIT at the WTO, arguingthat the domestic content requirements were local-content subsidies prohibitedunder the SCM and TRIMs.136 Both complainants probably thought they hadgood arguments under the SCM: The guaranteed minimum price for renewablesseemed to satisfy SCM Article 1’s requirement that a subsidy be a financialcontribution that conferred a benefit. Furthermore, receipt of this subsidy seemedto be clearly dependent on “Minimum Required Domestic Content Levels”—aviolation of SCM Article 3.1(b) on its face.137 For complex procedural reasons,the WTO was unable to complete its analysis of whether Ontario’s FIT provided abenefit,138 and therefore did not consider whether any alleged subsidy wascontingent upon the use of local content.

132. The WTO panel and Appellate Body effectively “merged” the respective complaints from Japan(Canada—Renewable Energy, dispute no. DS412) and the European Union (Canada—Feed-in Tariff, disputeno. DS426), considered them simultaneously, and published a single document containing two mostlyoverlapping reports. See Canada—Renewable Energy ABR, supra note 6, at 1 (Secretariat’s note explaining thedual-report situation). For the sake of simplicity, this section will only cite to Canada—Renewable Energy whendiscussing both disputes simultaneously.

133. Canada—Renewable Energy ABR, supra note 6, ¶ 1.3.134. See generally WORLD FUTURE COUNCIL, FEED-IN TARIFFS—BOOSTING ENERGY FOR OUR FUTURE 6

(2007), http://area-net.org/wp-content/uploads/2016/01/WFC_Feed-in_Tariffs_Brochure.pdf.135. Canada—Renewable Energy ABR, supra note 6, ¶ 1.4.136. Id. ¶ 1.6.137. SCM, supra note 23, art. 3.1(b).138. Specifically, the WTO Appellate Body was unable to determine whether a benefit had been conferred to

renewable-energy producers in Ontario, a necessary condition for the existence of a subsidy under SCM 1.1(b).The panel and Appellate Body agreed on the standard for assessing whether a benefit has been conferred:Whether a benefit exists is determined by comparing the advantage that a recipient receives from thegovernment with a “benchmark” based on what the recipient would receive in the relevant market. Canada—


Fortunately, the WTO panel and Appellate Body were able to complete theiranalysis of the FIT’s consistency with the prohibitions in TRIMs Article 2.1 andthe Illustrative Annex. The WTO panel held that Ontario’s “Minimum RequiredDomestic Content Levels”139 were an example of a trade-related investmentmeasure listed in the Illustrative List, in that the Ontario measure required “thepurchase or use by an enterprise of products of domestic origin or from anydomestic source.”140 This finding triggered TRIMs 2.1.141 The panel and theAppellate Body further agreed that no exceptions applied, and that Ontario’sdomestic content requirements violated WTO law.142 Because TRIMs does notspecify the definition of a trade-related investment measure,143 the WTO panelsidestepped the difficult element-by-element analysis that made it impossible todetermine whether the FIT requirements were a subsidy.144

A WTO panel and the Appellate Body were given an opportunity to refine theirapplication of TRIMs 2.1 in another dispute involving support for renewables,India—Solar Cells.145 This dispute involved India’s Jawaharlal Nehru NationalSolar Mission (“JNNSM”), a program that, like Ontario’s FIT, sought to encour-age renewable energy by purchasing electricity from solar providers at long-term,contractually guaranteed rates, creating the certain profits necessary to attract

Renewable Energy ABR, supra note 6, ¶¶ 5.159–5.166; see also SCM, supra note 23, art. 1.1(b), 14(d).However, the Appellate Body held that the panel erred in applying this standard: First, the panel erred byconsidering the parties’ proposed benchmarks before considering the relevant market. Canada—RenewableEnergy ABR, supra note 6, ¶ 5.169. This error might seem trivial to non-trade lawyers, but it could lead to a lessobjective analysis by making it easier for parties and panelists to shop for the benchmarks that benefit theirrespective positions. Second, the panel erred in selecting the market for electricity generated from all sources ofenergy as the relevant market for the benefit comparison. Id. ¶ 5.169. The panel selected this market on thetheory that it enjoyed high “demand-side substitutability” between electricity generated through differenttechnologies. Id. ¶ 5.170. The Appellate Body reasoned that the panel should also have considered “supply-sidesubstitutability” factors: type of contract, size of customer, whether the electricity was generated for base-loador peak-load, etc. Id. Unfortunately, this holding had the effect of rendering the WTO Appellate Body unable toreach a decision: Like a U.S. Court of Appeals, the WTO Appellate Body can only consider questions of law,whereas the selection of the appropriate market benchmark is a question of fact. See id. ¶¶ 5.244–5.246(Appellate Body explaining why it could not complete the panel’s analysis and reach a decision on whetherOntario’s FIT conferred a benefit). Yet, unlike a U.S. Court of Appeals, the WTO Appellate Body lacks thepower to remand questions of fact to a panel for further analysis, and therefore cannot reach a decision if it lacksthe necessary facts before it, as was the case here. See id. Thus, the WTO Appellate Body simply leftunanswered the question of whether Ontario’s FIT conferred a benefit. Id.

139. Panel Report, Canada—Certain Measures Affecting the Renewable Energy Generation Sector, ¶ 7.166,WTO Doc. WT/DS412/R (circulated Dec. 19, 2012) [hereinafter Canada—Renewable Energy PR].

140. Id. ¶ 7.115.141. Id. ¶ 7.166.142. Id.; Canada—Renewable Energy ABR, supra note 6, ¶ 5.33.143. See supra section II.C.144. Canada—Renewable Energy PR, supra note 139, ¶ 7.154.145. Panel Report, India—Certain Measures Relating to Solar Cells and Solar Modules, WTO Doc.

WT/DS456/R (circulated Feb. 24, 2016) [hereinafter India—Solar Cells PR]; Appellate Body Report, India—Certain Measures Relating to Solar Cells and Solar Modules, WTO Doc. WT/DS456/AB/R (adopted Oct. 14,2016) hereinafter India—Solar Cells ABR].


investment to the sector. Like Ontario’s FIT, the JNNSM also involved a series ofdomestic content requirements (“DCR” measures), which conditioned produc-ers’ participation in the program on the use of domestic content.146 Furthermore,rather than prescribing a certain percentage of content that must be domestic, likeOntario’s FIT, JNNSM simply set forth components that must be produced inIndia.147 At first, renewables producers were required only to source “crystallinesilicon” solar modules from India; as the program progressed, the requirementswere tightened to prevent the use of “foreign thin-film modules” and entire “solarcells” as well.148

The WTO panel and Appellate Body largely followed the reasoning fromCanada—Renewable Energy and Canada—Feed-in Tariff. The United States—the complainant in India—Solar Cells—entirely forewent any claims based onthe SCM, instead focusing on arguments that JNNSM violates TRIMs andGATT Article III itself.149 Although we do not know for sure, the United Stateslikely focused on TRIMs in order to avoid the procedural difficulties that thecomplainants encountered under the SCM in Canada—Renewable Energy andCanada—Feed-in Tariff. Therefore, both the panel and Appellate Body discussedwhether the DCR measures constitute TRIMs.150 In this context, the WTO panelcandidly noted that it was “not persuaded that the measures at issue in this caseare distinguishable in any relevant respect from those examined by the AppellateBody in Canada—Renewable Energy / Feed-In Tariff Program.”151 Therefore,as in the Canada cases, the panel held that India’s DCR measures wereTRIMs because they required the purchase of domestic over foreign inputs,violating TRIMs 2.1 and GATT Article III.4.152 Furthermore, the panel foundthat because no exceptions applied, India’s domestic content requirementsviolated WTO law.153 The Appellate Body upheld the panel’s decision in itsentirety.154

2. The Economic and Environmental Effects of Canada and India’s LCRs

As with Chinese export subsidies for solar, Ontario and India’s support forrenewable energy seem to address the market failure underlying climate change.

146. India—Solar Cells PR, supra note 145, ¶¶ 7.7–7.14.147. Id. ¶ 7.8.148. Id. ¶¶ 7.8, 7.10.149. First Written Submission of the United States, India—Certain Measures Related to Solar Cells and

Solar Modules, 2, WT/DS456 (Oct. 24, 2014), https://ustr.gov/sites/default/files/files/Issue_Areas/Enforcement/WTO/Pending/Sub1.fin.pdf.

150. India—Solar Cells PR, supra note 145; India—Solar Cells ABR, supra note 145.151. India—Solar Cells PR, supra note 145, ¶ 7.120.152. Id. ¶ 7.99.153. Id. ¶¶ 7.187, 7.265, 7.333, 7.382.154. India—Solar Cells ABR, supra note 145.


The Canadian and Indian governments’ support helped renewable-energy produc-ers internalize some of the positive externalities they were providing but wereotherwise unable to capture. This is exactly what energy markets need in order toincrease the production of cheaper renewables. As an added bonus, both pro-grams’ domestic content requirements seem to have helped create jobs andjumpstart industries. Apologists for Ontario’s FIT point out that the programhelped promote renewable energy and produce thousands of local jobs.155 In fact,Siemens,156 CS Wind,157 Enercon,158 and GE159 all established facilities inOntario shortly after the FIT was put in place, suggesting that the domesticcontent requirement may have played a role in establishing a local industry.Similarly, apologists for India’s JNNSM point to the program’s ability to deploymore solar panels in a country where many people still lack access to electricity,all while creating up to one million local jobs.160

A closer look demonstrates that Ontario and India’s programs likely causedmore market failures than they solved, actually delaying climate progress.Specifically, even if Ontario and India’s support for renewables helped internalizeexternalities, these benefits were counteracted by the negative effects of LCRs:higher prices for solar panels and wind turbines in the relevant jurisdictions,limited competition and innovation, and a counterproductive, tit-for-tat trade war.As of the time of publication, less information is available on the economiceffects of India’s JNNSM, and so this section focuses on the economic effects ofOntario’s FIT.

First, Ontario’s LCRs likely increased the costs of renewable energy withoutproviding environmental benefits. This result makes sense in theory: LCRs forcerenewable-energy producers to select solar panels or wind turbines based onwhere they were produced, not on whether they best fit the producers’ needs at thelowest costs. This means that renewable-energy producers cannot enjoy thebenefits of comparative advantage or economies of scale, and therefore likely

155. GREEN ENERGY ALL. & SHINE ONTARIO, ONTARIO FEED-IN TARIFF: 2011 REVIEW 9 (2011), https://www.pembina.org/reports/on-feed-in-tarif-2011-review.pdf.

156. Press Release, Siemens, Siemens Selects Tillsonburg, Ontario, as New Home for Canadian WindTurbine Blade Manufacturing Facility (Dec. 2, 2010), https://www.siemens.ca/web/portal/en/press/pages/tillsonburg-ontario-new-home-canadian-wind-turbine-blade-manufacturing-facility.aspx.

157. Press Release, Ontario Ministry of Energy, New Wind Tower Plant Creates 700 Jobs in Windsor (Dec.1, 2010), http://www.samsungrenewableenergy.ca/sites/default/files/pdf/Windsor-Dec2-Full.pdf.

158. Diane Bailey, Enercon to Build Factory in Ontario, WINDPOWER MONTHLY (Sept. 28, 2011), http://www.windpowermonthly.com/article/1095866/enercon-build-factory-ontario.

159. GE to Manufacture 288 Wind Turbines for Ontario Wind Farms, PLANT (Apr. 11, 2012), http://www.plant.ca/sustainability/ge-to-manufacture-288-wind-turbines-for-ontario-wind-farms-60566/.

160. Ben Lilliston, What Goes Around Comes Around: U.S. Trade Agenda vs. Climate and Green Jobs,COMMONDREAMS (May 13, 2014), http://www.commondreams.org/views/2014/05/13/what-goes-around-comes-around-us-trade-agenda-vs-climate-and-green-jobs; NAT. RES. DEF. COUNCIL, SOLAR POWER JOBS: EXPLORING

THE EMPLOYMENT POTENTIAL IN INDIA’S GRID-CONNECTED SOLAR MARKET 7 (2014), http://www.nrdc.org/international/india/files/renewable-energy-solar-jobs-report.pdf.


face higher-cost turbines and panels.161 Furthermore, this cost is likely to beborne by consumers of renewable energy.162 Thus, the domestic content require-ment put the costs of correcting the market failure on exactly the wrongparties—the consumers—whom we want to consume more renewable energy,not less. These theoretical predictions seem to have been borne out in practice:There is a consensus that Ontario’s domestic content requirements have increasedthe costs of renewable energy without providing significant environmentalbenefit.163 And these higher costs likely contributed to the dramatic increaseOntario consumers saw in their electricity bills, which in turn sparked asignificant political backlash.164

Second, Ontario’s LCRs likely reduced competition and innovation. Again,this result makes sense in theory: LCRs in small markets create barriers to entrythat keep out competitors.165 Rational producers respond to these conditions bysetting up “screwdriver” factories where they produce the minimum necessary tocomply with the domestic content rules,166 and then sell expensive, technologi-cally backward products to a captured market.167 This also seems to have beenborne out in practice: Many of the production facilities touted by proponents ofOntario’s requirements were in fact “screwdriver” operations that merely as-sembled components manufactured elsewhere, leading to disappointing resultsfor employment and innovation.168 The benefits of protecting a so-called “infantindustry” from global competition are often illusory, undermining one of the

161. See KRUGMAN ET AL., supra note 39, at 159.162. See id.163. See Press Release, Ontario Ministry of Energy, Ontario Lowering Future Energy Costs (Dec. 11, 2013,

3:15 PM), http://news.ontario.ca/mei/en/2013/12/ontario-lowering-future-energy-costs.html (government ofOntario promising that repeal of LCRs will reduce costs of FIT by $1.9 billion CAD over 25 years); see alsoJAN-CHRISTOPH KUNTZE & TOM MOERENHOUT, INT’L CTR. FOR TRADE & SUSTAINABLE DEV., LOCAL CONTENT

REQUIREMENTS AND THE RENEWABLE ENERGY INDUSTRY—A GOOD MATCH? 21–22 (2013), http://seti-alliance.org/sites/default/files/local-content-requirements-and-the-renewable-energy-industry-a-good-match.pdf; Sherry M.Stephenson, Addressing Local Content Requirements: Current Challenges and Future Opportunities, INT’L

CTR. FOR TRADE & SUSTAINABLE DEV. (July 25, 2013), http://www.ictsd.org/bridges-news/biores/news/addressing-local-content-requirements-current-challenges-and-future; SUSTAINABLE PROSPERITY, DOMESTIC CONTENT RE-QUIREMENTS FOR RENEWABLE ENERGY MANUFACTURING 5–6 (2012), http://www.sustainableprosperity.ca/sites/default/files/publications/files/Domestic%20Content%20Requirements%20for%20Renewable%20Energy%20Manufacturing.pdf.

164. See, e.g., Ben Eisen, Ontario’s Energy Policies a Costly Blunder, TORONTO SUN (Dec. 8, 2015, 8:40PM), http://www.torontosun.com/2015/12/08/ontarios-energy-policies-a-costly-blunder.

165. See MORAN, supra note 101, at 111–16.166. Id.167. Id.168. See John Laforet, An Inconvenient Truth About Green Energy Jobs, HUFFINGTON POST (Sept. 20,

2011, 3:16 PM), http://www.huffingtonpost.ca/john-laforet/ontario-green-jobs_b_972088.html; John Ivison,McGinty’s Clean Energy Poster Child Starving for Work, NAT’L POST (Sept. 16, 2011, 6:00 AM), http://news.nationalpost.com/full-comment/john-ivison-mcguintys-clean-energy-poster-child-starving-for-work.


most common arguments in favor of local content requirements.169

Third, as with export and actionable subsidies, local content requirements arelikely to provoke a response from other WTO members, sparking a wasteful tradewar.170 The dynamics are the same as for export subsidies: If one countryimposes LCRs on renewable energy, other countries are likely to follow suit.171

And one country’s LCRs counteract any benefits of another’s, such that allcountries must pay without receiving any benefit.172

While Ontario and India’s support for renewable energy may have helpedrenewable producers internalize negative externalities, these two jurisdictions’LCRs probably created their own set of market failures by interfering withcomparative advantage, economies of scale, and competition. Thus, the WTOpanels and Appellate Body reached the correct environmental and economicresult in holding that these programs violated TRIMs.

CONCLUSION

Contrary to popular perception, the WTO is a friend to those seeking to controlclimate change, perhaps one of the most important friends currently available.The WTO principles of MFN, NT, and low tariffs have and will continue to fosterglobal, competitive, and efficient solar-panel and wind-turbine industries. Underthe principle of MFN, when a WTO member grants any “advantage, favour,privilege or immunity” to one trading partner, it must grant the same treatment toall its other trading partners.173 Under the principle of NT, WTO members maynot subject foreign products to either “internal taxes” greater than those imposedon like domestic products174 or “laws, regulations and requirements affect-ing . . . internal sale” less favorable than those governing like domestic prod-ucts.175 As a result of the GATT’s and WTO’s focus on lowering tariffs, tariffs arenow a fraction of what they were in the past.176 Together, these principles allowentrepreneurs to take advantage of comparative advantage, economies of scale,and global competition.177 The result is cheaper renewable energy, faster.Whatever the arguments for and against free trade in other areas, cheap renew-ables are crucial for bringing about a renewable-energy revolution that canmitigate climate change.

169. For arguments that renewable energy is an infant industry requiring protection, see generally Farah &Cima, supra note 67; Rubini, supra note 67.

170. See KRUGMAN ET AL., supra note 39, at 235.171. See id. at 236.172. See id.173. GATT, supra note 20, art. I.1.174. Id. art. III.2.175. Id. art. III.4.176. See Baldwin, supra note 36, at 6 (showing an eighty-nine percent decrease in tariffs between 1930 and

1979 due to the first seven GATT rounds); WORLD BANK, supra note 36.177. See KRUGMAN ET AL., supra note 39, at 26–28, 37, 52, 81–88, 158–160.


Abandoning these principles will only delay the advent of renewable technolo-gies able to compete with fossil fuels on cost. Furthermore, the SCM and TRIMsprovide the policy space WTO members need to correct the market failuresunderlying climate change, while imposing important disciplines to ensure thesecorrections do more good than harm. Ultimately, environmentalists should learnto love the WTO. Abandoning it would only make things worse in the fightagainst climate change.


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